Why the China Bears Will Get It Wrong (Again) in 2024 |
Thursday, 1 February 2024 — Adelaide, Australia | By James Cooper | Editor, Mining: Phase One and Diggers and Drillers |
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Twitter (X): @JCooperGeo [4 min read] In this issue: An all-important update on iron ore Bill Bonner: The International Court of Justice drops the hammer |
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Dear Reader, It’s been a while since I covered the all-important iron ore market, so I thought I’d give it some attention today. As you may remember, iron ore’s most important market, China, was on the brink of collapse six months ago. That was according to virtually every analyst and mainstream news outlet. But once again, the latest data from the People’s Republic of China put that idea to bed. Official figures reported 5.2% GDP growth over 2023, a tad above earlier forecasts of roughly 5% expansion. It’s certainly a far better outcome than most doom and gloom news outlets predicted last year. Here’s a couple of examples, below. My colleague Callum Newman and I were lone voices amid last year’s China paranoia. At the height of the panic in August 2023, I wrote this (emphasis added). While [iron ore] imports dipped during COVID-19 the demand outlook remains strong. Analysts expect shipments to rise between 40–60 million metric tons this year from last year’s 1.11 billion tons…that will be the first rise in three years. Yet it’s not a story being picked up by mainstream papers. Instead, ABC, CNN, The New York Times and BBC are all focused on the 20% jobless rate among China’s youth…a group that includes 16–24-year-olds. But according to CEIC data…jobless rates among 25–59-year-olds reached a record low in July 2023. It stands at a very healthy 4.1%. Clearly, this age bracket encompasses the bulk of active workers in China and offers a far better gauge of economic health. But that works against the bearish China narrative. Instead…mainstream media remains focused on a group of citizens more likely to be studying, living at home or still in school! But what about the big elephant in the room, Chinese deflation? Well again, the data here is far more upbeat than most news outlets would have you believe. Yes, headline CPI fell into negative territory last month. But what about the more important figure…core inflation? Again, that’s not the number being discussed. Yet it surprised to the upside in July rising by 0.8% and remains well above the lows from 2021 when it dipped into negative territory. Today it remains at 0.80…a smidgen below its long-term average of 1.25. That’s hardly cause for panic. You can read the full article here. So, what happened after that? Iron ore miners boomed! Fortescue [ASX:FMG] has led the charge up 45% since late August. Not bad for one of Australia’s largest companies. Iron ore’s strength was one of the biggest surprises from 2023…that’s why it pays to shift your attention AWAY from the mainstream. Which is exactly why I’m not giving too much weight to the latest headline grabbing shock. If you haven’t heard, a Hong Kong court ordered Chinese developer, Evergrande Group, to liquidate this week after it was unable to reach a restructuring deal with creditors over hundreds of billions of dollars it owes. Evergrande is one of China's biggest property developers. Predictably, the ABC rolled out a slew of scaremongering articles this week predicting ‘another’ imminent China collapse. Wash and repeat. No doubt, hard-hitting headlines bring in readers…but they’ll do little for your portfolio or your ability to rationally assess the market. So, what’s next for iron ore? Can this commodity continue defying expectations and rise to new highs this year? Well, probably not, if you trust the latest forecasts from Australia’s Treasury department. It expects prices plummeting to just US$60 per tonne by mid-2024. Right now, the commodity hovers around US$130 per tonne. But this wouldn’t be the first time the Treasury gets its outlook horribly wrong for Australia’s most important export. Recall 2022…crystal ball gazers at the Treasury department forecast iron ore falling to just US$55 per tonne by the end of Q1 2023. Yet, over that period the metal never dipped below US$120. More than 100% off target estimates! Ironically, we’re told we can’t rely on official data from China. But are the figures published by the west any better? In my mind, there’s no immediate concern for iron ore in 2024. Just take a look at the chart below. Since bottoming in October 2022, iron ore continues to gather pace. The commodity is up more than 58%. Despite several major setbacks over the last 18 months, including hysterical media reports of an imminent Chinese crash…iron ore CONTINUES to trend HIGHER. It’s why I don’t expect China’s economy to implode anytime soon. Longer term though? Well, that’s a different story. While commentators remain fixated on China’s internal woes, the REAL economic threat will arrive from abroad. An issue that will change the landscape for investors in Australia. I’ll give you a snapshot of that in next week’s edition of Fat Tail Daily. I’m stunned why no one is recognising it. That’s despite it unfolding right in front of us! The evidence is clear. I’ve outlined all of it in my latest report to my paying subscribers. If you want in on the action, please click here. Enjoy! Regards, James Cooper, Editor, Mining: Phase One and Diggers and Drillers James Cooper has been a working geologist in mines across Australia, Canada, and Africa since the early 2000s. He’s led the operations of tiny explorers through to huge producer outfits. He’s seen booms and busts firsthand and he also understands the cyclical nature of individual commodities. For example, James was right there when Barrick Gold launched an enormous $7.5 billion takeover bid for Equinox. That was the peak of the last cycle. With his background as a geo and finance professional, he brings a unique insight and experience to Fat Tail Investment Research. He writes the broader resource-focused investing letter Diggers and Drillers and the ultra-speculative explorer-focused trading service Mining: Phase One. Advertisement: THE FATAL FLAW IN ‘FULL ELECTRIFICATION’ Australia and 139 global governments are now marching in lockstep. We’re moving towards Full Electrification. But there’s one fatal flaw everyone is conveniently ignoring. And Aussie investors who spot it first could stand to benefit. CLICK HERE FOR THE FULL STORY |
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Civilisation vs. Barbarism |
| By Bill Bonner | Editor, Fat Tail Daily |
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[4 min read] Dear Reader, It was a show-down. A ‘rules-based order’…vs. firepower. Law versus brute force. Civilisation vs. Barbarism. On Friday, the International Court of Justice handed down a verdict. The World Court, on Friday, ordered Israel to take action to prevent acts of genocide as it wages war against Hamas in the Gaza Strip, but it stopped short of calling for an immediate ceasefire, Reuters reports. Ruling on a case brought by South Africa, the Court said Israel must ensure its forces did not commit genocide and take measures to improve the humanitarian situation for Palestinian civilians in the enclave. In the ruling, 15 of the 17 judges on the International Court of Justice (ICJ) panel voted for emergency measures which covered most of what South African asked for, with the notable exception of ordering a halt to Israeli military action in Gaza. Even the American judge, Joan E. Donoghue, sided with the majority. Is this progress? The ruling was mostly ignored in the US; ‘how many divisions does the ICJ have,’ Anthony Blinken might have asked, if he had a sense of humour. But it was headline news throughout the rest of the world. It was something new. One nation is trying to prevent a slaughter by another nation by appealing to an international court. Plausible Evidence Whatever else it is, it is definitely the first time a rag-tag bunch of religious extremists on the edge of the civilised world — with no navy — has tried to impose a shipping blockade. And it’s the first time such an ‘act of terrorism’ (shooting at passing ships) has been done with the apparent approval of the ‘rules-based order.’ In other words, now that the ICJ has found plausible evidence of genocide, all nations are meant to do what they can to prevent it. So far, the Houthis are the only ones to take this responsibility seriously…which is in itself extraordinary. Note that the ICJ did not call on Israel to stop its military activities…just to make sure it wasn’t committing genocide. This gives the Israelis some room for argument about what, specifically, constitutes ‘genocide,’ and whether it is guilty of it. On the other hand, it puts everyone on notice. The rules-based order is watching. Will it prevail? The progress of civilisation was largely a trend towards less brute force and more law. Less violence…more consensus, more customary rules. More win-win deals. Fewer win-lose deals. And today, most private transactions in most places are of the win-win variety. With big exceptions. Shoplifters, for example, take…they don’t give. Rapists don’t bargain either. But, in general, we expect our fellow citizens to do unto us as we would do unto them. The really big exception is government. It claims the right to use as much violence as necessary to achieve its ends. It takes our money. It puts people in prison. It bombs and assassinates. Death by Democide In the US, there is a movement afoot to limit the number of firearms (466 million!) in private hands. But it’s the firearms — guns, artillery, bombs, tanks — used by government enforcers that do the most damage. Sometimes the feds use them to kill their own citizens. And sometimes they use them to kill foreigners. R.J. Rummel, in his 1994 book, ‘Death by Government,’ calls it ‘democide.’ He put the total for the last century at 262 million dead…and the century wasn’t even over yet. In The Second World War, neither side was too careful about following the rules. The Japanese were brutish and criminal (later, many were tried and condemned for war crimes) in the Far East. The Germans were out to exterminate whole groups of people — including millions of Slavs and Jews (among others) whom they regarded as inferior. The Nuremberg trials condemned, and hung, a few. But the Allies had innocent blood on their hands too. The Soviet Union murdered millions of soldiers and non-combatants in various ways — starving prisoners of war…and executing Polish officers. The English and Americans firebombed Dresden on three days in 1945, with 25,000 dead — almost all of them civilians. Arthur ‘Bomber’ Harris, head of Britain’s RAF Bomber Command, called it an ‘act of terror.’ By comparison, it took Israel three months to kill that many. Then, in what appeared to have no military objective whatsoever, the US let loose two atomic bombs on Hiroshima and Nagasaki (civilian targets) even as Japan was trying to surrender. Power Over Law Victors, however, are not prosecuted for war crimes. Instead, they are chiselled in granite and preach the virtue of following the ‘rules.’ After The Second World War, the US made the rules. And then interpreted them, as it pleased. Its attack on Iraq, for example — unprovoked, almost out-of-the-blue — was plainly a violation of the rules. But nobody liked Iraq. And the war was carried out with at least a reasonable respect for the rules of warfare. Civilians were not targeted. And so, the war was brought to a close with no gain for the victors, but no major confrontation with the ‘rules-based order.’ But after 7 October 2023, the US stopped mentioning rules. Its number one ally in the Middle East — Israel — began doing things that prompted worldwide outrage — killing thousands of civilians. This led South Africa to charge Israel with genocide. Yemen (at least the part of it dominated by the Houthis) imposed a limited blockade on Israeli shipping. And now that the ICJ has ruled against Israel…what next? Will Israel bend to the law? Or will it ignore the court and become an outlaw? Who wins? Rules? Or firepower? Ultimately, the political world is about power…not law. It’s firepower that calls the tune; the lawyers dance. But ‘rules’ usually are not just ‘made up.’ They reflect deeper judgements, about right and wrong, and what people should be allowed to get away with. And when other nations see an outlaw nation, they are likely to be alarmed, beefing up their own firepower … …preparing for an out-of-court settlement. Regards, Bill Bonner, For Fat Tail Daily All advice is general advice and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment. |
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